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3 Utilities Companies that Broke Out Last Week

Posted: 01 Jun 2020 04:30 AM PDT

It's hard to go a minute without the use of some utility to provide electricity, water or natural gas. Even when you turn the lights out to go to sleep, you probably rest better knowing that your cell phone is charging and that your alarm clock is being powered. While utilities are extremely important to our everyday life, it doesn't always provide the most interest from investors or traders. This is partly due to the unique nature of analyzing them fundamentally, but it's largely because they have a tendency to be less volatile.

While not always the sexiest choice for investment, it is an area that can perform well at times and typically outperforms during corrections. Part of the reason outperformance is the reliability of their revenue stream and the fact that most pay a relatively higher dividend yield.

In a post on Friday, we discussed penny stocks that are breaking out as a means of getting away from large cap names. Investment in utility stocks is another way of choosing an area that will outperform during weakness.

By having a list of companies that will likely outperform the bull case scenario and a list that will outperform in the bear case scenario, it will help provide the flexibility needed to improve returns.

Let's take a look at three utilities companies that broke out last week.

Utility Stock #1: NextEra Enery, Inc. (NYSE: NEE)

NextEra is the largest utility company by market cap and is an electric power company and provides power to over 10 million people. They are the world leader in electricity generated from wind and sun, and are the largest electric utility in the U.S. by retail MWh sales. They have over 470,000 customers in northwest Florida alone.

The company currently pays a 2.23% dividend yield, which is slightly below the 5-year average of 2.57%. It has a current payout ratio of 71% and has a 5-year dividend growth rate of 11.9%.

NEE was up over 10% last week and is looking to retest its February high of $282.50.

Utility Stock #2: Summit Midstream Partners, LP (NYSE: SMLP)

Summit is a midstream energy infrastructure company that provides natural gas gathering, compression, treating and processing. The company operates from resources in Utah, Colorado, New Mexico, Texas, North Dakota, Ohio and West Virginia.

The company recently suspended its dividend and is the process of working to simplify its structure and lower costs. Part of the "transformational simplification" is a $35 million deal to acquire Summit Midstream Partners, LLC. They are looking to reduce capital spending by about a third.

With the suspension of the dividend and the lower profitability, this play presents more of an opportunity for appreciation and carries higher risk. The share price of SMLP shot up over 50% last week as it looks to complete a double bottom formation. Friday's over 30% move on significant volume is a good indication that there is a fair amount of interest and has potential to around $3.50.

Utility Stock #3: Spark Energy (NASDAQ: SPKE)

Spark is a retail energy services company that operates a retail electricity and natural gas company. The company operates in over 19 states and 94 utility territories. The company engages in an aggressive hedging strategy against virtually all areas with fixed price exposure. They are looking to increase their exposure to natural gas from 21% to 25%.

The company currently pays a 8.23% dividend yield, which is higher than the 5-year average of 6.71%. It has a current payout ratio of 233.87% and has a 5-year dividend growth rate of 29.3%. While the payout ratio is extremely high, in the trailing twelve months the company generated free cash flow of $99.6 million and only paid out $18.5 million in dividends. This displays the ability of the company to generate plenty of cash to pay the dividend and grow it in the future.

SPKE was up over 10% last week and is looking to retest its 52-week high of $11.50.

The post 3 Utilities Companies that Broke Out Last Week appeared first on Trading Tips.

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Option Traders Taking a Closer Look at Consumer Cyclicals as the Sector Nears February High

Posted: 01 Jun 2020 04:30 AM PDT

The Consumer Discretionary SPDR Select Sector ETF (NYSEARCA: XLY) finished higher for the week last week but for only the second time in the past nine weeks, it underperformed the Consumer Staples SPDR Select Sector ETF (NYSEARCA: XLP). While one week doesn't make a trend, it is a sign and as the price approaches Pre-COVID highs it does make you wonder how much is left in the tank.

The top holdings in XLY are Amazon.com Inc (NASDAQ: AMZN), Home Depot Inc (NYSE: HD), McDonald's Corp (NYSE: MCD), Nike Inc B (NYSE: NKE) and Lowe's Companies, Inc (NYSE: LOW). Dovetailing with the overbought nature of the sector and the companies in it, Friday's post on HD insider selling is interesting;.

On Friday, the options market began to anticipate a potential correction in the Cyclicals sector as the there was unusual volume activity on XLY. Put option volume was over 1.5 times the average with a majority of the trades getting executed between the bid and ask. As you look at interesting activity, the 5 JUN 20 $120 put traded over 3,000 contracts against an open interest of 56. Of the volume, most of the activity were long puts.

Action to Take: XLY is a short opportunity with a close below $122 with a $120 target.

Option traders may want to consider the 17 JUL 20 125/123 long put vertical for around $0.85. the max gain of $115 or 135% ROR is achived if the price closes below $123 by expiration. Consider closing early for $1.60 or more.

The post Option Traders Taking a Closer Look at Consumer Cyclicals as the Sector Nears February High appeared first on Trading Tips.

This is the Most-Sold Stock by Insiders Last Week

Posted: 01 Jun 2020 04:30 AM PDT

Last week there were only six companies with insider sales that were over $500 million market cap, has an average of 500,000 in daily volume, trades over $10 million in daily trade value with at least 2 sell transactions and $1 million in value. While the list is relatively short, there was some heavy selling in several of the names.

The company that led the list with over $986.8 Million in value sold is Avantor Inc (NYSE: AVTR). Considering the value, it is considerably more than what was seen on Virgin Galactic Holdings Inc (NYSE: SPCE) that we wrote about last week. Insiders sold over 62 million shares in 4 different transactions. This on top of the selling that occurred last week. Insider transactions included two different 10% owners in Goldman Sachs and New Mountain Investments and two directors. Goldman sold 10% of their holdings and New Mountain sold nearly 20%. There are numerous reasons for selling, one that was discussed on a previous post on BlackRock Inc (NYSE: BLK) involved a company needing to become more liquid.

Action to Take: AVTR is a short opportunity with a close below $18 with a $16.50 target.

Speculators may want to consider buying the 21 AUG 20 17.50/15 long put verticals for $0.35 or less. The max gain of $215 or 600% ROR is achieved if the price closes below $15 by expiration. Consider closing early for $1.25 or more.

The post This is the Most-Sold Stock by Insiders Last Week appeared first on Trading Tips.
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